Hotel Lotte Co., South Korea's largest duty-free operator, said Friday it will hand over three of its four money-losing concessions at Incheon International Airport in the coming months in the latest setback to its duty-free business.

The move came as Incheon International Airport Corp., the airport operator, approved Lotte's request to end the concession deal, except for alcohol and cigarettes. Lotte Duty Free said it paid a penalty of 187 billion won (US$175 million) last week.

The three concessions cover cosmetics, perfumes, clothes, leather products and other luxury goods.

Lotte said it can leave the airport's Terminal 1 after July 7.

The two sides had failed to adjust rental fees for the concessions at Terminal 1 at South Korea's main gateway.

Lotte's concession contract with the airport operator is worth 4.1 trillion won for the September 2015 to August 2020 period.

This file photo taken Sept. 4, 2017, shows Lotte Duty Free stores at Incheon International Airport, west of Seoul. (Yonhap)

Lotte recently said it cannot pay rent for the remainder of its five-year contract due mainly to a plunge in the number of Chinese tourists, a key source of income for Lotte.

Sales at Lotte's duty-free business came to 5.98 trillion in 2016 and 6.06 trillion won in 2017, of which about 70 percent in each year came from deep-pocketed Chinese tourists, according to the company.

China halted all tour packages to South Korea in retaliation against the deployment of a U.S. missile defense system in southeastern South Korea. Lotte Group became a key target of China's ire after its unit provided a golf course for the deployment of the U.S. missile defense system. (Yonhap)